mortgages

Keep Your Family HappyHome ownership is the American ideal. But there are good and valid instances in which renting is a better alternative. Look at them carefully before taking the leap into a mortgage.

If You Make Frequent Moves

If you know that your job is going to require that you relocate every few years, or if a bit of “wanderlust” is part of your makeup, you’d be foolish to be burdened with home ownership everywhere you went. Home purchases and sales involve costs, with fees on both sides. Even in a positive market where property values intend to increase, you aren’t likely to break even.

When A House Payment Would Break You

It isn’t just the monthly payment. There tends to be more out-of-pocket expenses with home ownership. Maintenance and repairs, for instance. When debating the factors, add about a thousand dollars a year to the mortgage money for such costs. Best to leave those to another owner while you pay a set rent if things are looking tight.

If you are looking at homes, notice that some of them are in serious disrepair, probably from just this circumstance. The owners can afford the payment, but not the upkeep. Assume that this could happen to you too, if the margins are too skimpy. Maybe, like some home purchasers, you believe you can take care of upkeep and repairs yourself, but if the demands get beyond your capacities, you’ll end up paying a contractor. Being house poor is hardly a desirable offset for the perceived blessings of owning.

What Your Area Offers

If in your neighborhood a home typically sells for $300,000, with a monthly payment of $1,800, but rentals can be had for $1,000 a month, the math isn’t hard to do.

Unless you can easily manage the $1,800, the rental seems the better option. What you lose in such a scenario is the tax advantage that a mortgage offers. But the $800-per-month savings in rental payments goes a long way toward offsetting that advantage. And you needn’t look at the additional costs of maintenance and repairs, which amounts to even more savings.

Making Major Life Changes

A personal financial crunch, divorce, being widowed, relocation, starting a new job — these and many other unexpected life events are all good reasons that you may need to rethink ownership vs. renting, at least temporarily. Any situation that creates a new reality for you should demand such a rethink. In any major life upheaval, renting could provide the flexibility you need before things settle into that new reality. Not being tied to a mortgage could help you safely bridge gaps when things don’t go as you had thought they would.

If owning a home is your dream, go for it. But remember that renting is a good option until the dream comes true.

The federal government is looking for ways to trim its outlay and subsidization of home mortgages has slipped onto the list of possible programs to delete. The possible demise of the subsidies might spell the end to home ownership for many Americans.

The history goes back more than 40 years to a time when promotion of home ownership led the feds to boost support for potential buyers who couldn’t meet financial guidelines.

Now the tentative talk in the Obama administration is to eliminate Fannie Mae and Freddie Mac, the huge government programs created to administer the program. That would not eliminate 30-year mortgages, but would leave the market to people with modest incomes who could afford to purchase from a private lender. At this point, the 30-year fixed-rate loan is the most popular in the United States. Some 80 percent of mortgages fall into this category, which means that Fannie and Freddie can guarantee them, as long as they’re below a maximum amount. Spreading payments over such a long span costs more in the long haul, but makes ownership affordable for many buyers.

Part of the conversation centers on massive default statistics, in which the government has been left holding the bag as subsidized homeowners opt out before completing payment. Throw in management and accounting scandals at Fannie and Freddie and there seems plenty of ammunition for those willing to scrap the program. The costs to the country’s taxpayers reach into the billions of dollars, they say. But the availability of government guarantees has given many lower-middle-class Americans entrée into home-ownership. How those two factors will balance out as the discussion goes forward remains to be seen.

Critics argue, on the other hand, that subsidization has created the highest-priced housing available in the world. Over-building and selling too-large homes have resulted, they contend. Because down payments are low, it appears that the homeowner is less reluctant to default on a whim. The loss is not great. The financial experts suggest that requiring a 20 percent – or more – payment up front would discourage people from walking away before the loan has been paid down.

Should the government bow out of the mortgage business, 30-year mortgages would not disappear, but they likely would be higher-priced and there would be fewer of them, experts predict. The percentage of buyers seeking these loans likely would drop to the 30 percentage neighborhood, they say.

History shows that the government’s involvement as a provider of subsidies significantly changed the housing market. In the 1920s, for instances, the more common scenario was for a buyer to put down 40 percent of the cost of the house and obtain a low-interest loan for 10 years. Refinancing was common.

Other countries have devised ways to help low-income citizens get into a home, some say, and have higher homeowner rates than the U.S. In some, subsidization is not an option.

As talk heats up in Congress, dozens of arguments will have their bearing. There is little expectation of a fast resolution of the question and when the dust clears, there could be little difference — or a huge revision in how Americans buy or don’t buy their homes.